An idea on taxes

From: James Rogers (
Date: Wed Jan 02 2002 - 21:02:06 MST


I just had an interesting thought on an alternative to progressive income
taxes, which always had anti-progressive consequences in my opinion.

Suppose income taxes were eliminated altogether and replaced with a
marginally higher tax on capital gains (not more than 30%). The government
would have to tighten its belt for a few years, but the net effect may
actually be what the progressive income tax claims to be and isn't. There
are a number of apparent consequences to this. Overall, this looks like a
more promising way of bootstrapping people from low affluence to moderately
high levels of affluence.

First, you would probably see a substantial rise in savings and investment
as people have substantially more disposable cash, allowing people to become
modestly affluent much faster if they desire. Second, as the number of
affluent people increases as a percentage of the population, there will
likely be a growth in capital availability which will fuel economic
expansion and boost wages. Third, as more of the population becomes
significantly invested in capital investments, the government will see its
tax revenue increase; the government would be motivated to see that people
become very affluent in this system, whereas today they are motivated to
keep people in the middle class. Because people still earning an income are
unlikely to convert capital investments very often, they would be able to
enjoy the wealth building properties of capital investment without the drag
of taxes.

There are downsides as well, but off-hand it seems like a constructive
system (at least insofar as any tax system can be considered
"constructive"). Income taxes never taxed anyone but the middle class for
the most part, and "progressive" income taxes actually make it even worse.
Income taxes don't rise in proportion to affluence, and there is no way for
them to do so. Capital gains taxes on the other hand, do tend to increase
as a function of real wealth for people. The real trick is keeping the
capital gains tax low enough that it doesn't discourage investment. This
means that initially the government would have far less money, but in the
long run they could make it up in volume and have a lot fewer poor people to
use as poster children for pork projects.

I still oppose taxes in general, but this seems a lot better to me than the
stupidity of "progressive" income taxes if you are REALLY interested in
helping the working man.


-James Rogers

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